Court News Ohio
Court News Ohio
Court News Ohio

Wednesday, June 13, 2018

The Cincinnati Reds v. Joseph W. Testa, Tax Commission of Ohio, Case no. 2017-0854
Ohio Board of Tax Appeals

City of Girard v. John A. Giordano, Case no. 2017-1069
Eleventh District Court of Appeals (Trumbull County)

Must Sports Team Pay Tax on Bobbleheads and Other Giveaways?

The Cincinnati Reds v. Joseph W. Testa, Tax Commission of Ohio, Case no. 2017-0854
Ohio Board of Tax Appeals


  • Is a promotional item given away with the purchase of a ticket to a sporting event a gift that is subject to Ohio’s sales and use tax?
  • Is a promotional item included in the price of a baseball game ticket, even if the ticket price is the same for games where no promotional items are given away?
  • Is a ticket holder’s requirement to attend the game to receive the promotional item a contractual agreement that qualifies the promotional item for a tax exemption?

The Cincinnati Reds are a major league baseball team, and its primary source of revenue is ticket sales. As an incentive to purchase tickets to certain home games, the Reds provide attending fans with promotional items that can change from game to game. Items vary, including caps, reusable grocery bags, framed photos, and bobbleheads. Bobbleheads, which are miniature statues of Reds players with oversized heads that bobble, are the most popular and valuable among the Reds’ promotional items.

The Ohio Department of Taxation audited the Reds for purchases the club made from 2008 through 2010. The Ohio tax commissioner determined that the Reds owed about $88,000 in “use tax” for the promotional items they bought from vendors and intended to give away at the games. The department is also seeking a penalty and interest for the non-payment of the tax.

The Reds appealed the decision to the Ohio Board of Tax Appeals, arguing that the promotional items are advertised as “free” to potential ticket buyers, but that the actual costs of the items are factored into the ticket price. The Reds consider the giveaways to be items for resale under Ohio law, and those items are exempt from the sales and use tax.

The Ohio Board of Tax Appeals (BTA) ruled that because the price of a ticket for a game with a promotional item is the same as the price for a game without an item, the Reds were not reselling the items, and upheld the tax commissioner’s assessment. The Reds appealed the BTA decision to the Supreme Court, which will hear oral argument In the case.

The Ohio Supreme Court will be at least the fourth state high court to decide the issue of taxation of major league baseball giveaways. The parties note that the Kansas City Royals, the Milwaukee Brewers, and the Minnesota Twins have challenged the taxation of promotional items with varying results.

Ticket Purchase, Not Price Determines Sales Tax Issue, Reds Argue
The Reds assert that property purchased for resale, such as promotional items the team purchased from vendors, are exempt from the state sales or use tax. A sale requires the transfer of possession or title to the property for “consideration.” The term “consideration” has a specific legal meaning that generally requires one party to fulfill a promise in exchange for the other party’s fulfillment of a promise. Consideration is a necessary element for a valid contract that is legally binding.

The Reds explain that when valuable property is transferred in conjunction with the purchase of another item, the consideration given by the buyer is for both pieces of property. In this case, the Reds maintain that consideration given by the buyer is the purchase price of the ticket, which entitled the ticket buyer to both the ticket to attend the game and the right to receive the promotional item. The club argues nothing in Ohio law requires that a separate stated price must be listed to establish that property was transferred as consideration for both items. Further, the consideration given by the ticket holder doesn’t have to be monetary, the Reds assert. The fact that the ticket holder must attend the game to get the item is sufficient. The Reds not only benefit by being paid for the ticket, but the actual attendance by fans is a benefit to the Reds because the more fans who attend the game, the greater the chance of more concession and merchandise sales, and better home-field advantage that may help the team win the game.

The Reds explain that a higher price isn’t charged for the ticket of games where there are giveaways, but rather the cost is spread into the price of all tickets sold during the season. Club executives maintain that the team projects attendance based on several factors including the weather, the competition, and the time of year. They then estimate which games have the best chance having attendance boosted by giving away a promotional item. The club estimates the potential ticket sale increase by the type of item it has to offer and orders an amount of items they believe they need to have on hand to give an item to each ticket holder who qualifies for the giveaway. The club then projects the annual attendance and factors the costs of the items into the overall ticket price to charge for the season, the club concludes. Because the cost is factored into the ticket price for the season, the Reds consider their presentment of a “free” item to a ticket holder to actually be a resale of the item, and exempt from taxation under R.C. 5739.01(E) and R.C. 5741.02(C)(2).

Among the cases the Reds point to in their brief are a decision by the Missouri Supreme Court addressing the Kansas City Royals giveaways, and an Ohio Supreme Court  ruling regarding taxing the toys in McDonald’s Happy Meals. In 2000, the Missouri high court found that while the items were given away, the cost of purchasing the items was factored into the price charged for each ticket to a Royals game and the club wasn’t required to pay a use tax on the purchase of the items from vendors.

The Reds argue its giveaways are no different than those other retailers use to induce shoppers. The club references the Ohio Supreme Court’s 1993 Heidman v. Limbach decision. The Court ruled in Heidman that the toy in the Happy Meal induces the purchase of the whole meal and the toy can only be obtained by buying the Happy Meal. The toys are exclusive to the purchase of a Happy Meal, but there is no separate charge for the toy. The Court found the toy was part of the Happy Meal as a whole and part of the sale, which made it exempt from the use tax.

Items Are Taxable Gifts, Tax Commissioner Maintains
The tax commissioner argues that based on the testimony of the Reds’ chief financial officer, the club is in the business of selling tickets, not promotional items, and that, under R.C. 5741.02, an item is subjected to the Ohio use tax if a person “gives or otherwise distributes it, without charge, to recipients in this state.”

The commissioner explains that the resale exemption allows a purchaser to not pay sales or use tax on an item they intend to resell in basically the same form. When the item is resold, the buyer then pays sale tax on the item. This is intended to prevent duplicative taxation on the sale of an item as it moves from the item maker to a retailer and then to the consumer, the commissioner notes. That’s not what happens with the Reds giveaways, the commissioner asserts. The commissioner didn’t consider the transaction to be a sale because the “expectation of a giveaway” isn’t the same as a guarantee of a giveaway. The commissioner notes the Reds explicitly state that the items are limited and not every ticket holder who attends the game where an item is given away is guaranteed to receive an item. Because the Reds aren’t promising a ticketholder an item, there is no “consideration” and the transaction doesn’t meet the definition of a sale. Because it isn’t a sale, the resale exemption the Reds claim is invalid, the commissioner concludes.

The commissioner argues the promotional items are only intended to boost ticket sales, and the sale of tickets aren’t taxable by the state. The means the only point of the transfer of the item from one owner to the other that could be taxed is when the Reds buy it from the suppliers, the commissioner concludes.

The commissioner also notes that all three high court decisions regarding major league baseball favor the state’s position. Both the supreme courts of Wisconsin and Minnesota rejected the arguments of Milwaukee Brewers and the Minnesota Twins that the promotional items are tied to the ticket price. (The Reds note that Ohio is different than Wisconsin because that state has a specific law that prevents factoring the cost of a promotion item into a ticket price). The tax commissioner asserts the Missouri decision doesn’t support the Reds argument because sporting event tickets are taxable in Missouri and the ruling simply prevented the Royals from double taxation on the promotional items. By collecting a sales tax on the ticket, the state was able to collect a tax on the promotional item, if the team did factor the cost it into the overall ticket price, the commissioner notes. But since Ohio doesn’t have the same law, the commissioner argues, the Reds are alleging they don’t have to pay sales tax when they buy the item or when the resell the item.

The tax commissioner also charges the Reds can’t rely on the Heidman decision regarding the Happy Meal toys. That case dealt with the sale of Happy Meals and the toys as part of birthday party packages. Because the party packages were taxable, the toys were considered to be part of resold item that would have been taxed. That’s different than the Red’s argument which claims the item it is reselling is part of a “package” that can’t be taxed, the commissioner concludes.

“These are free promotional items. In Ohio, that means they are subject to use tax, which the Reds must pay since the Reds use them. If the Reds are successful, these promotional items will never be subject to sales or use,” the commissioner’s brief states.

- Dan Trevas

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Representing the Cincinnati Reds: Steven Dimengo, 330.376.5300

Representing the Tax Commissioner of Ohio from the Ohio Attorney General’s Office: Daniel Fausey, 614.644.8909

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Would It Be Double Jeopardy to Try to Prosecute Man for Animal Cruelty?

City of Girard v. John A. Giordano, Case no. 2017-1069
Eleventh District Court of Appeals (Trumbull County)

ISSUE: When a trial court doesn’t attain an explanation of circumstances as required by R.C. 2937.07 as part of a no contest plea to a misdemeanor offense, do the double jeopardy clauses of the U.S. and Ohio constitutions discharge the defendant from criminal liability and bar subsequent prosecution for the same offense?

In February 2016, the city of Girard, near Youngstown, charged John A. Giordano with cruelty to animals, a second-degree misdemeanor. Giordano pled no contest to the offense. The trial court found Giordano guilty and sentenced him in June 2016 to a suspended 90-day jail term and one year probation, fined him $750 with $500 suspended, and ordered him to give up his dog, Hazard.

Giordano appealed to the Eleventh District Court of Appeals, arguing that the trial court didn’t abide by R.C. 2937.07, which states, “Upon receiving a plea of guilty, the court or magistrate shall call for an explanation of the circumstances of the offense.” The Eleventh District agreed and set aside the conviction. The appeals court concluded that insufficient evidence supported the guilty finding and that returning the case to the trial court for “a new determination of guilt or innocence was barred by double jeopardy.”

The city appealed to the Ohio Supreme Court, which accepted the case.

City Argues Case Can Return to Trial Court for Required Explanation of Circumstances
In its brief, the city discusses the Ohio Supreme Court’s 1984 decision in Cuyahoga Falls v. Bowers. The Court considered whether trial courts must comply with R.C. 2937.07 given that court rules for criminal cases state that a no contest plea is an admission of the truth of the facts alleged in the complaint. The Court ruled, however, that “R.C. 2937.07 confers a substantive right” and that “a no contest plea may not be the basis for a finding of guilty without an explanation of circumstances.”

Although several state courts of appeal have interpreted Bowers to mean a case that proceeded without the required explanation of circumstances can’t return to the trial court because double jeopardy is implicated, the city maintains that the Supreme Court didn’t rule that a defendant must be discharged from criminal liability when a trial court fails to call for the required explanation. The city points to State v. Hull (2006), in which the Ohio Supreme Court considered a speedy trial issue in a case where a woman’s conviction was vacated because the trial court didn’t follow R.C. 2937.07. The appeals court remanded the case to the trial court, and a trial was conducted.

“This appeal essentially asks the Supreme Court of Ohio to explicitly state today what it implicitly found in Hull, which is that the proper remedy upon a trial court’s failure to attain an explanation of circumstances is not to bar prosecution of the individual but rather to remand the case to the trial court for further proceedings,” the city’s brief states.

The city argues that the trial court’s failure in this case was a procedural error, not an indication of insufficient evidence. For double jeopardy purposes, the U.S. Supreme Court has stated that a reversal based on insufficient evidence is a finding that the state failed to prove its case, while a reversal based on a trial error implies nothing about the defendant’s guilt or innocence, only that the judicial process was somehow defective.

The city notes that the trial court stated it had reviewed the police report, which indicated that Giordano kneed and punched Hazard, as well as a report from the Learning Dog Center, which stated that the dog’s behaviors reflected it had become accustomed to abuse. The court’s guilty finding was supported by facts in the record, the city argues.

Prohibiting a retrial after the error in Giordano’s case wouldn’t serve the interests of justice, the city concludes. In the city’s view, this type of error should be reviewed using an analysis referred to as “plain error.”

“If there are no facts whatsoever in the record to support the guilty finding and the defendant did not waive the explanation, then it should be held to be a manifest miscarriage of justice and the case remanded for further proceedings – to allow the prosecutor to proceed to trial or the court to attain a new plea and properly receive an explanation of circumstances,” the city contends. “However, if facts appeared in the record that would support the conviction, then there is no manifest miscarriage of justice and the conviction affirmed.”

Returning Case to Trial Court Is Second Attempt at Punishment, Giordano Contends
Giordano argues that the case record must include an explanation of circumstances and show that the trial court considered that explanation when making its ruling. Citing a 1988 Eighth District Court of Appeals decision (Chagrin Falls v. Katelanos), Giordano states that even if the court’s record includes documents that could show a defendant’s guilt, that’s not enough. The record must show that the trial court considered any documents the prosecution relied on, Giordano argues.

Giordano emphasizes that the courts of appeals in Ohio that have reviewed this issue all agree – a case overturned because a trial court didn’t ask for the mandated explanation of circumstances can’t return to the trial court for further proceedings because doing so would violate the prohibition against double jeopardy. Giordano quotes from rulings in the Second, Eighth, and Eleventh district courts of appeals in which the courts concluded that when the elements of the offense aren’t established in the explanation of circumstances, then the defendant must be discharged, and the state doesn’t get a second chance to prove its case.

He contends that the city suggests a case in which no explanation of circumstances was obtained is simply against the manifest weight of the evidence and could be returned to the trial court for more proceedings. Giordano argues, however, that the city’s recommended procedure is inconsistent with other case law. When considering whether a conviction is against the manifest weight of the evidence, Giordano states that an appeals court conducts a limited re-weighing of the evidence and remands the matter for a new trial if the trial court lost its way in weighing the evidence.

In this case, though, there is no evidence to reweigh because there was no trial, Giordano notes. He maintains that the reviewing court must instead consider whether there was sufficient evidence to support a conviction. A misdemeanor conviction without the explanation of circumstances required by the law isn’t supported by sufficient evidence and cannot be sent back to the trial court, Giordano concludes.

Public Defender Argues Law Must Be Enforced
The Office of the Ohio Public Defender has filed an amicus curiae brief supporting Giordano’s positions.

- Kathleen Maloney

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Representing City of Girard: Michael Bloom, 330.847.0723

Representing John A. Giordano: Michael Partlow, 330.400.2290

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.